LONDON: European stock markets were mixed on Monday, with early gains in Milan turning to losses following a credit downgrade for Italy, which plans to stick to a controversial spending budget.
The dollar rose against major rivals, while oil prices edged lower, as investors tracked geopolitical tensions, notably in response to the killing of Saudi critic Jamal Khashoggi.
"Moody's have downgraded Italy's credit rating to one notch above junk status, but the agency lifted its outlook to stable from negative, so investors aren't afraid of another downgrade in the near-term," said David Madden, market analyst at CMC Markets UK.
Around 1345 GMT, the Milan FTSE MIB index was off by 0.38 percent, after an initial rally petered out.
Wall Street stocks edged higher as trading began on Monday, with the market trying to shake off volatility seen last week.
On Friday, Moody's ratings agency downgraded Italy on concerns about its populist government's plans to increase public spending, a move criticised by the European Union.
The downgrade -- from Baa2 to Baa3 with a stable outlook -- is the latest move by international financial watchdogs sounding the alarm over Italy's economic health.
Italy's coalition on Monday told the European Union that it would stick to its high-spending draft budget but will scrupulously avoid going over its own debt and deficit limits.
"The figure of 2.4 percent (deficit to GDP ratio in 2019) is a ceiling that we have solemnly undertaken to respect," Prime Minister Giuseppe Conte told journalists after the coalition sent its pledge in a letter to the EU.
Earlier Monday, most Asian stock markets rose, with Shanghai surging more than four percent to build on a rally at the end of last week -- though traders remain cautious over China-US trade tensions.
Tokyo reversed early losses to end 0.4 percent higher, while Sydney fell.
While trade unrest simmers, investors are considering other brewing problems, including the US saying it will pull out of a decades-old nuclear treaty with Russia.
Russian deputy foreign minister Sergei Ryabkov warned withdrawal "would be a very dangerous step".
Markets meanwhile continue to track international pressure on Saudi Arabia after the kingdom admitted that a journalist critical of Riyadh had been killed at its Istanbul consulate.
Saudi Arabia on Monday said it had no plans to retaliate, easing fears of a repeat of its harsh 1973 oil embargo.
- Key figures around 1345 GMT -
Milan - FTSE MIB: DOWN 0.4 percent at 19,008.49 points
London - FTSE 100: UP 0.4 percent at 7,077.98
Frankfurt - DAX 30: UP 0.1 percent at 11,561.22
Paris - CAC 40: DOWN 0.1 percent at 5,077.53
EURO STOXX 50: DOWN 0.2 percent at 3,204.21
Shanghai - Composite: UP 4.1 percent at 2,654.88 (close)
Tokyo - Nikkei 225: UP 0.4 percent at 22,614.82 (close)
Hong Kong - Hang Seng: UP 2.3 percent at 26,153.15 (close)
New York - Dow Jones: UP a hair at 25,448.50
Euro/dollar: DOWN at $1.1472 from $1.1511 at 2100 GMT on Friday
Pound/dollar: DOWN at $1.2970 from $1.3066
Dollar/yen: UP at 112.73 from 112.50 yen
Oil - Brent Crude: DOWN 65 cents at $79.13 per barrel
Oil - West Texas Intermediate: DOWN 78 cents at $68.34